The OPEC Reference Basket dropped in October for the first time since the record 13% plunge in June, falling $2.31 to stand at $108.36/b. Higher supply growth and concerns regarding the health of the global economy have left oil prices on a steady decline since mid-September. The downward pressure sustained as mounting concerns of a global economic slowdown, a pessimistic future demand outlook and significant crude stockbuilds in the US outweighed supply concerns due to geopolitical factors. Moreover, speculators continue to reduce net long positions from record-high levels seen during the last quarter. The liquidation in net length coincided with a significant downturn in prices, confirming the link between hedge fund positions and crude oil prices. On 8 November, the Basket stood at $104.58/b.
• Global growth expectations are unchanged at 3.1% for 2012 and 3.2% for 2013. The US is forecast to grow by 2.2% in 2012 and 2.0% in 2013; Japan is expected to decelerate from 2.2% this year to 1.1% in 2013; and the Euro-zone to return to growth in the coming year at the magnitude of 0.1% following a contraction of 0.5% in 2012. Growth expectations this year for China stand at 7.6% and at 8.0% in 2013, while India’s expansion is forecast at 5.7% in 2012 and 6.6% in 2013.
• World oil demand growth in 2012 is estimated at 0.8 mb/d. The impact of Hurricane Sandy is expected to reduce US oil demand in late October and early November. Year-end cold weather might put pressure on heating oil not only in the US but in Europe as well. This could increase oil demand marginally in the fourth quarter. Furthermore, the transportation sector contributed to the slowdown in oil use in its peak summer season as a result of slower economic activities. World oil demand is forecast to continue its growth during 2013 to reach 0.8 mb/d. Expected weakness in the world economy is placing a considerable amount of uncertainty on the world oil demand forecast.
• Non-OPEC supply in 2012 is forecast to increase by 0.5 mb/d, representing a downward revision of around 50 tb/d from the previous report. In 2013, non-OPEC supply is forecast to grow by 0.9 mb/d, in line with the previous forecast. The US, Canada, South Sudan and Sudan, Brazil, Australia, Kazakhstan and Russia are expected to be the main contributors to next year’s growth, while Mexico, Norway, and the UK are anticipated to see the largest declines. OPEC NGLs and nonconventional oils are estimated to average 6.0 mb/d in 2013, indicating growth of 240 tb/d over the current year. In October, OPEC crude production averaged 30.95 mb/d, a minor decrease over the previous month, according to secondary sources.
• Product markets showed a mixed performance in October. Middle distillates continued to show strength worldwide on the back of tightening sentiment for that product ahead of the winter season. In contrast, the gasoline market experienced a sharp decline in the Atlantic Basin at the end of the driving season. This, along with the loss in the bottom of the barrel, caused refinery margins to fall worldwide.
• In the tanker market, October was uneventful with low activity in general. Tonnage demand and freight rates decreased for VLCCs, while slightly increasing for Suezmax and remaining flat for Aframax. Sailings from OPEC declined slightly in October to average 23.71 mb/d. Arrivals in North America dropped, while arrivals in Europe, the Far East and West Asia rose. Both global and OPEC spot fixtures increased in October from the previous month by 0.6 mb/d and 0.3 mb/d, respectively.
• Preliminary data shows that total OECD commercial oil inventories remained broadly unchanged from the previous month in September. Inventories stood at 6 mb above the five-year average. However, the picture differs within the components as commercial crude stocks showed a surplus of 32 mb, while product stocks indicated a deficit of 26 mb. In days of forward cover, OECD commercial stocks stood at 58.9 days at the end of September, almost 2 days over the five-year average. The latest data shows US total commercial oil stocks fell 3.2 mb in October, although still representing surpluses of 42 mb over the five-year average and 34 mb above a year ago. The drop was attributed to products which fell by 11.6 mb, while crude oil stocks rose 8.4 mb.
• Demand for OPEC crude for 2012 remains unchanged from the previous assessment at 30.1 mb/d, representing a decline of 0.1 mb/d compared to the previous year. Demand for OPEC crude in 2013 is forecast to average 29.7 mb/d, representing a drop of 0.4 mb/d from the current year and a downward adjustment of 0.1 mb/d from the previous report.
Source: OPEC